The simplest way for archiving and searching emails

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In this article/post, I want to share with the entrepreneur community a new business idea that I have in mind in order to get feedbacks, comments and thoughts (I would really appreciate it). As a software and enterprise architect, I´m always designing simple, usable (functional) and pretty (good user experience from the aesthetic view) architecture solutions and refactoring to optimize the architecture of legacies. I´m a fond of optimization problems (research and practice), specifically in the topics of high performance for storage, indexing and processing. Applying the customer development and lean startup concepts, my vision is to (re-)segment the problem/solution space of data archiving toward the email archiving. So, I´m thinking to make my contribution to the computer world by providing an optimized email archiving solution in terms of storage cost effectiveness and simple user interface for organizing and searching emails very easily (this is my unique value proposition). I´m guessing that the target market (customer segment in the business model canvas) are personal-, small-, and medium- business which mainly need to store/archive the emails for legal and particular purposes in a large period of time. I want to name this service as Archivrfy.

Business transactions not only can involve enterprise applications and OLTP systems but also a bunch of emails, for example to register contracts, sales conversations and agreements as well as for evidence of invoices and payment information. Most companies underestimate the effort for the maintanance of traditional tape backups and data indexing to simplify searches.

In order to protect and retain mission critical data contained in emails; companies need a new and very simple approach to easily capture, preserve, search and access emails. For example, the legal department and people see e-mail as an essential factor in its discovery response strategy to present them as evidence in a court of law. The volume of email being generated every day is becoming a huge problem, so organizations and people can free its storage space by moving emails to archiving vaults.

You can archive emails at low cost for reducing local storage space and complying with legal requirements. For security, data is encrypted while in transit and preserve in the final vaults using adjustable retention policy. It´s based on cloud computing technology and available always with 99.99%. It´s scalable with unlimited growth (depending on the available resources in the cloud).

You can use a very simple and fast user experience to search (supporting eDiscovery scenarios) and access to the archived emails for improving productivity. It´s based on an optimized search algorithm by enriching the content with metadata to organizing and extending dynamically the search criteria. As well as it´s a flexible tecnology for simple integration with existing platforms and exporting to several portable email files.

In order to support the previous scenearios using a solution with scalability, high availability and high performance in mind; we need to design a robust architecture for Archivrfy service as shown below.

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In this article, I´ve share my vision of an email archiving solution in terms of the unique value proposition and the underlying technical architecture.

I really appreciate any thoughts and feedback to help me improve my business vision.

I look forward to hearing from you … very soon

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Customer Discovery, first phase of Customer Development

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As part of my research about the Steve Blank´s  (@sgblank) Customer Development methodology, now I´m reading the book The Startup Owner’s Manual: The Step-By-Step Guide for Building a Great Company (http://www.amazon.com/The-Startup-Owners-Manual-Step-By-Step/dp/0984999302) which is very good resource for every entrepreneur.

In this post, I would like to share my notes and insights about the first phase in the Customer Development method: the Customer Discovery. The goal of Customer Discovery is to be sure that a specific product solves known problem for an identifiable customer segment. This phase is executed by the founders.

A startup begins with the vision of its founders: a vision of a new product or service that solves a customers´ problem. The goal of customer discovery is to turn the founders´ initial hypothesis (guesses) about customers, market and solution (product/service) into facts in order to search for the problem/solution fit. Facts exist only outside the building, where customer live, so we need to get out of the building in front of the customers (days, months and even years). It´s done by the founders, so they can know if it´s a vision or just hallucination, so the value proposition matches the customer segment it plans to target. Remember that most business model fails because we waste money, effort and time in building the wrong product.

It´s remarkable to say that there may be multiple value propositions and multiple customer segments, but the problem/solution fit is only achieved when the revenue and pricing model, value proposition, and customer acquisition efforts all match up with customers´ needs.

In a startup, at the first day, we don´t have plenty of customer knowledge, so the first product (minimum viable product – MVP) is not designed to satisfy a mainstream customers but small group of early customers who have bought the startup´s vision. They will give feedback to startups necessary to add features to the product over time and tell others about the product to the world. The idea is to put the MVP in front of customers to find out whether we have understood the customer problem to define the key features of the solution. Then, we iteratively refine the solution.

The business model canvas from Alex Osterwalder (@AlexOsterwalder) is the scorecard used in the customer discovery step to organizing our thinking by specifing the hypotheses (guesses) and experiments as well as a medium to record the result (pass/fail) of the experiments for the validation of hypotheses in searching for the business model.

The business model canvas (http://en.wikipedia.org/wiki/Business_Model_Canvas) enables specifying how the company expects to make money in nine blocks: value proposition, customer segment, channels, customer relationship and demand creation, revenue and pricing model, partners, activities and costs structure.

The business model canvas can´t be static snapshot but dynamic. We need to update the canvas to reflect any pivot and iterations in time period (let´s say a week). After the time period, we need to agree on the changes to the business model and integrate them in a new view of the canvas to work on for the next time period. In any precise moment of the time, we have the current canvas and a stack of previous canvases.

We need to do a market research using Total Available Market (TAM) and Served Available Market (SAM). TAM covers every way a customer can currently meet a need, and SAM is the portion of the TAM that our product covers. TAM answers the question: How big is the market (the total of all unit sales of all the competing products)? In short, TAM is the total potential market. TAM is expressed using dollar value. Identifying the TAM and SAM can help to understand the target customers. We can use several tools such as Google Insights, Google Trends and Facebook ads, industry-analyst reports, market-research reports and competitor´s  press.

We also have to launch a landing page (with call-to-action) as product concept, traffic analysis and medium for validating hypothesis as well as to contact the target customers using a contact list in order to conduct survey, get insights and receive feedback. After that, we need to launch a low fidelity MVP.

Customer Discovery phase has four sub-phases.

  • Phase 1 deconstructs the founders´ vision into the nine parts of the business model canvas
    • Goal: To sketch out the possible problems we´re solving and what product we´re building and how we believe this will create value for the customers, in other words we´re stating our hypothesis
    • Description: We need to describe the jobs the customers are trying to get done and outline their pains and gains as well as to list the products/services we´re trying to offer to alleviate pains and create gains. The team specifies the hypothesis for each part of the business model (value proposition, customer segment, channels, market type, customer relationship and demand creation, revenue and pricing model, partners, activities and costs structure) including the list of experiments to conduct to prove or disprove each one
    • Tools:
  • Phase 2 enables conducting experiments to test the problem-related hypotheses in the business model canvas
    • Goal: To understand the problem/solution fit by turning hypotheses into facts or discarding them if they´re wrong and replacing them with new hypotheses
    • Description: We do so by hearing our customers and testing the most important elements in the business model including the customer problems, value proposition, pricing, channel strategy and sales process in order to understand how important the problem is and how big it can become (start getting out of the building to talk as many potential customers as possible). Building a landing page is hard because we need customer insights and iterating without talking directly to customers is slow. So, talking directly to customers has more learning validation than any other method. In other to structure the problem presentation, we can use the following checklist:
    • State the top 3 problems
    • Ask the customer to prioritize the problems
    • Ask the customer how he works today and his pains and gains today
    • Ask the customer how he solves the problems today
    • Very briefly, describe how we might solve the problem
    • Would the customer use the solution if it were free?
    • Would the customer pay $X per year?
    • Ask for referrals to others

Phase 3 enables testing the solution by presenting the value proposition and low fidelity MVP

Phase 4 enables stopping and assessing the results of the experiments we´ve conducted and verified

  • Goal: To verify, if we need whether to pivot or to start selling the product because we´ve achieved the problem/solution fit
  • Description: We can have a full understanding of customers´ problems and needs, confirmed the value proposition solves real problems, determined a sizable volume of customers, learn the customers will pay for the product and finally made certain the revenue will deliver a profitable business
  • Tools:

According to the Ash Maurya (@ashmaurya), there are 3 rules to actionable metrics derived from Lean Startup principles.

Rule 1: Measure the right macro

Eric Ries recommends focusing on the macro effect of an experiment such as sign-ups versus button clicks.

There are only a handful of macro metrics (only 5 – AARRR) that really matter. These are the metrics for pirates from Dave McClure (@davemcclure) organized depending on the customer lifecycle as shown below:

  • Acquisition: Users come to the site from several channels
    • Key question:
      • How do users find you?
    • Examples:
      • X number of clicks
      • Y number of page views
      • Z time on the site
  • Activation: Users have a happy first experience with the product
    • Key question:
      • Do users have a great first experience?
    • Examples:
      • Conversion rate
      • Number of users that sign-up
      • Number of users that watch product demonstration
  • Retention: Users come several times to the site to use the product
    • Key question:
      • Do users come back?
    • Examples:
      • Number of users using the product per month
      • Number of email click throughts
      • Number of feedback
      • Retention rate
  • Referral: Users like the product enough to refer it to others
    • Key question:
      • Do users tell others?
    • Examples:
      • Number of referrals
      • Number of activations
      • Viral factor > 1 (it means that every customer gets more than one another customer, therefore your product will grow virally)
      • Conversion rate
  • Revenue: Users engage on monetization activities (purchase, subscription, etc), so to find out how much profit they make for every customer and scale the number of customers
    • Key question:
      • How do you make money?
    • Examples:
      • How much money do you make for every customer you acquire
      • Minimum revenue
      • Cancellation rate. Number of customer who cancel in any given month compared to total (paying) customers

Of the 5 metrics, only 2 metrics matter before the product/market fit (activation and retention). Before the product/market fit, we´re building some product that people want by providing a great first experience (activation) and most important customer engagement (retention).

Rule 2: Create simple reports

Reports that are hard to understand, simply won´t get used. Funnel reports are a great way to summarize key metrics. Funnel reports are simple and map well to Dave McClure´s AARRR startup metrics.

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Figure 1

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Figure 2

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Figure 3

David Cancel´s Funnel is shown below:

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Figure 4

Funnel reports have a key drawback: because we´re constantly changing the product, it´s impossible to tie back observed results to specific actions taken a month ago; so, it´s used a reporting period where events generated in that period are aggregated across all users

Funnel reports work well for micro-optimization experiments (such as landing page conversion) but fall short for macro-pivot experiments, so we need to combine them with cohorts.

A cohort analysis is a form of study design. For example, when the development team makes design choices, then they go back to review traffic data to evaluate the success of their choices. A cohort is a group of people who share a common characteristic or experience and we wish to track this property, for example, bucket users into the month they join. The most common cohort attribute is “join date”.

Let´s illustrate the concept of cohort analysis with two figures:

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Figure 5

The previous report is used for Retention. It´s generated using monthly cohort by join date and tracking key activities over time.

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Figure 6

A good report combining funnel and cohort is “Weekly Cohort Report by Join Date” as shown below:

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Figure 7

In the previous report, we group users by the week in the year they signed-up and then we track all their events over time. We can see visible changes in the metrics which can be tied back to specific activities done in a particular week.

Apart from reactive monitoring the funnel, cohorts can also be used to proactively measure A/B test experiments. For example, a report shows the experiment about a cohort measuring the “plan type” attribute for the Freemium versus Free Trials.

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Figure 8

Rule 3: Metrics are people

Metrics can only tell you what users did. To make them actionable, we need to tie them to actual people. This is important before the product/market fit when we don´t have a huge number of users and we rely on qualitative versus quantitative validation.

For example, a list of people which failed in the download step in the funnel.

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Figure 9

Finally, there are some techniques to getting to actionable metrics:

  • Split tests metrics. Produce the most actionable of all metrics, because it can confirm or refute a specific hypothesis. The real value is when we integrate them into the decision loop: putting the ideas into practice, seeing what happens, and learning. A good rule of thumb is to ask: if this test turns out differently from how I expect, will that cast serious doubts on what I think I know about my customers? If not, try something bigger. For example, let´s say we add a new feature, we´re using A/B tests in which 50% of customers (group A) see the new feature and the other 50% (group B) not. After some days, we measure the revenue and noticed that group B has 20% of revenue higher. After that, we roll out the feature to 100% (group A + group B) customers and keep on doing experiments/tests with more features in the same way
  • Per-customer metrics. It means that metrics are people too. For example, instead of looking at the total number of page views in a given month, consider looking at the number of page views per new and returning customer (most conversion). Those metrics should be relatively constant
  • Funnel metrics and cohort analysis. It´s a kind of per-customer metrics. For example, consider an ecommerce product that has a couple of key customer lifecycle events: registering for the product, signing for a free trial, using the product, and becoming a paying customer. We can create a simple report that shows these metrics for subsequent cohort (groups) over time. If the report says what percentage of customers who registered subsequently went on to take each lifecycle action. If these numbers are holding steady from cohort to cohort, then we have feedback telling that nothing is changing. If one cohort suddenly shifts up and down, we get into investigation

After, the customer discovery phase is successfully finished; we can proceed to customer validation in order to try to validate the sales roadmap, so we can be sure that a market is saleable and large enough that a viable business might be built.

What do you think about customer discovery phase? Please, feel free to tell your experience and comments.

What I´ve learned from the Lean Startup movement

Principles of Lean Startup

Lean startup movement is based on the following principle: a startup is a temporary organization designed to turn ideas into products by searching for a repeatable, scalable and profitable “business model” under a risky (uncertain) environment. In the very beginning a “business model” is a set of assumptions or untested hypothesis that we have to turn into facts as soon as possible. Risk (uncertainty) is statistically correlated to the lack of knowledge commonly found in future events. One way to mitigate the lack of knowledge in future events is by learning from past and present events. This is called validated learning in lean startup. It is very important to find and validate this “business model” (equivalent to say to turning untested hypothesis into facts) until we´re running out of resources (money, time and personal effort). We have found the right “business model” to execute a company when we´ve achieved the product/market (problem/solution) fit, in other words, building products that customer really wants and are willing to pay for. Thus, all the effort in the startup is to achieve product/market (problem/solution) fit.

Business Model Canvas

If the key objective in startups is to search and validate a proper “business model”, then we need to conceptualize what is a business model. Alexander Osterwalder and Yves Pigneur define the structure of business model as how the organization creates, captures and delivers value. They showed in their book “Business Model Generation” that any business model can be defined and visualized in 9 blocks or structural items using their Business Process Canvas as shown in the following figure.

Although in my humble opinion and basing my statement on the Porter´s five forces, the SWOT matrix and Kaplan´s Balanced Scorecard, I would add other boxes to express environmental elements such as governance, competition and substitutive products.

The canvas consists of the following building blocks:

1. Value Propositions

  • Questions:
    • What are the products/services that you´re providing to our customers? What is the Minimum Viable Product (MVP)?
    • What value do we deliver to our customers? Why will people want it?
    • What differentiation are we providing to our customers?
    • Which customer needs are you satisfying? How do we solve their problems (pain reliever) and make them grow (gain increaser)?
    • What is the market type? What is market size? How big is the opportunity?
  • Examples:
    • Applications for socially collaborations in solving complex problems in enterprise
    • Show a landing page and test positioning

2. Customer Segments

  • Questions:
    • Who are they?
    • Why will they buy?
    • What is the customer segment trying to get done?
    • What are the potential customers?
    • For whom are we creating value?
    • Who are our most important customers?
    • Is it a problem or a need?
    • What are the key jobs or business process to get done? What would make your customers the life easier? Rank each job and outline the context in which the job is done
    • What are the key gains? Expected benefits, desires
    • What are the key pains? Undesired costs and situation. Risks. Negative emotions
  • Examples:
    • Enterprise customers in mid to large organizations in the finnancial and telecommunication industries
    • Advertisers

3. Channels

  • Questions:
    • What channels are we using to reach our customers?
    • Physical versus virtual channels?
    • Direct or indirect channels?
    • B2B or B2C channels?
    • How to reach our customer segments to distribute value?
    • How our channels are integrated?
  • Examples:
    • The main channel for communication with our customers and delivering our application is Facebook
    • The second channel for delivering our application is AppStore and Google Store
    • Sales force

4. Customer Relationships

  • Questions:
    • What type of relationship does each customer expect to have and maintain with us?
    • How do you develop and maintain contact with customers in each segment?
    • What is your market campaign?
    • What is the demand creation? How do you create customer demand?
    • How our customers are integrated with our business model?
    • How costly are they?
  • Examples:
    • Support our users through our homepage and Facebook page
  • Techniques:
    • General marketing
    • Sales funnel
    • Get your web site and Google analytics up and running. Track where your visitors are coming from and how their behavior differs
    • Ask your users to take action such as signing in your system
    • If your product has virality, you will need to use the viral propagation

5. Revenue Streams

  • Questions:
    • For what value our customers are willing to pay?
    • For what value do they currently pay?
    • How are they currently paying?
    • How would they prefer to pay?
    • How will you price your offering?
  • Examples:
    • Freemium pricing model as the sales medium
    • Traditional advertising

6. Key Partners

  • Questions:
    • Who are our key partners?
    • Who are our key suppliers?
    • Who are our key outsourcings?

7. Key Activities

  • Questions:
    • What key activities (course of actions) do our value proposition (distribution channels, customer relationship, revenue streams) require?
  • Examples:
    • Development of enterprise application for socially collaboration
    • Agile development (Scrum methodology)
    • Marketing research and selling activities

8. Key Resources

  • Questions:
    • What key resources are we using to deliver value for our customers?
    • What is the organization chart?
    • What are the models for our business processes?
  • Examples:
    • Our organization chart
    • Engineering team
    • Marketing team

9. Cost Structure

  • Questions:
    • What are the costs and resources (fixed and variables costs) inherent to our business processes (executing our course of actions to achieve our goals)?
    • Which key resources are most expensive?
    • Which key activities are most expensive?
  • Examples:
    • Operating costs (ex: hosting the application in the data centers, total cost of ownership)
    • Transaction fees

In order to get the product/market fit (avoid stuff that customers don´t want), you need to analyze, design and validate the hypothesis related to the Value Proposition and Customer Segment blocks. I´ve found a very good tool developed by Alexander Osterwalder as shown below.

Customer Jobs at Customer Segment block

First of all, you need to look at the potential customers to sketch out a customer profile by describing the tasks they´re trying to perform and complete, the problems they´re trying to solve, or the needs they´re trying to satisfy.

Customer Pains at Customer Segment block

Next, you should describe the undesired costs and situations and risks experienced before, during and after getting the job done. Finally, you must rank each pain.

Customer Gains at Customer Segment block

Next, you should describe the benefits your customer expects, desires and cost saving. Finally, you must rank each gain.

Products and Services at Value Proposition block

After you have sketched out the customer profile, you need to start specifying the Value Proposition hypotheses. You need to list all of the products and services you offer that help you customer get the job done or satisfy their needs. Finally, you must rank each product or service according to the importance to your customer.

Pain Relievers at Value Proposition block

Next, you should describe how your products and services alleviate customer pains. Finally, you must rank each pain reliever.

Gain Creator at Value Proposition block

Finally, you should describe how your products and services create customer gains. You must rank each gain creator according to its relevance to the customers.

Validated Learning Cycle – Lean Startup process

On the first day of a startup, the business model is nothing more than a set of untested hypothesis (assumptions) that explain what is supposed to happen and we need to turn these untested hypothesis into facts. In practice, in order to search our business model (product/market fit), we need to test (validate) empirically these hypotheses using a method.

Some assumptions are validated using analogs and anti-analogs as explained by John Mullins and Randy Komisar in their book “Getting to Plan B”. John Mullins and Randy Komisar states that you don´t need to reinvent the wheel when key elements already exist. Consider the analogs to your idea – successful predecessor companies that are worth mimicking in some way. Next, consider the antilog – predecessor companies compared to which you explicitly choose to do things differently because some of what they did was unsuccessful. And the remaining untested hypotheses are leaps of faith that you need to focus on testing (validating).

In the learn startup movement, the process (method) to test hypothesis is called validated learning cycle, which essentially consists on iterating through the build-measure-learn on product prototypes that are called Minimum Viable Products (MVP). Main approach is to accelerate this feedback loop. So, in the validated learning process, the effort that is not necessary to learn from our customers can be eliminated.

Along with the validated learning method is the pivot concept (a very important one) that is described by Eric Ries as changing the strategies (the course of actions, ways, paths, etc) without changing the vision (the objectives, goals, etc).

This process is illustrated on the following picture.

Practically, we have a vision (be careful not to have a hallucination) on a future state that is good for (to help) people on making the world a better place and we have assumptions about the course of actions to follow to achieve our objective. We make a research to try to validate some assumptions with analogs (best practices, success stories) and anti-analogs (bad practices, failures), so we have an idea on what risky assumptions to focus firstly (they are called leaps of faith). After that, we build a product prototype to validate our leaps of faith from the business lens (not for answering product design or technical questions), so we can discover which one are true (tremendous opportunity awaits) or false (risks of total failure). With this knowledge (that´s why is called learning process) we can have an idea of either take a new course of actions or stay on the current path to achieve our objectives. This is done once again (iteration after iteration) until we have approaching to our key objective, that is, the product/market fit.

Customer Development

Customer development as a process can also be combined with business model canvas to test (validate) unproven hypotheses (assumptions) in order to search for a repeatable, scalable and profitable business model. This methodology was created by Steve Blank based on his maxim “In a startup no facts exist inside a building, only opinions”. In a nutshell, customer development process (four steps) describes a roadmap to achieve product/market fit (search mode) and then to build companies (execution mode). This method complements the product development process (agile development). The approach states that before developing a product, you should go out of the building to test your assumptions in order to get customer feedback. In the practices, most of these assumptions will end up being wrong. Search embraces failure as natural part of the startup. Startups will cycle through each step of the Customer Development method until they achieve the “escape velocity”; that is, enough progress in learning and finding the right business model to execute. Search versus execution is the main difference between a startup and existing business units. Searching for a business model requires a customer development team leaded by the founders with a learning and discovery culture because we don´t run a formal organization. This is illustrated in next figure.

The first step is Customer Discovery for capturing the founder´s vision and turning it into a set of untested hypotheses of the business model to test customer reactions to those hypotheses and turn them into facts. It aims at finding out the potential customers and the problems important for them (willing to pay for). You also need to specify the product concept (initially a set of features based on the founder vision) and a proposed pricing and purchasing model. Steve Blank says that “customer discovery is not about collecting feature list from prospective customers or running lots of focus groups. In a startup, the founder defines the product vision and use the customer discovery to find customers and a market for that vision”. This is the time “to get out of the building” in Steve Blank´s terms to gain insights from the customer´s feedback and adjust the business model. According to Steve Blank, this step comprises two phases:

  1. Testing the customer perception of the problem and the customer need to solve it.
  2. Showing the product prototype (usually a minimum viable product) for the first time to confirm the problem can be solved and the need is fulfilled.

In order to achieve sustainable growth, we have to define our product with features that supports our engine of growth. According to Eric Ries there are three engine of growth:

  • Sticky engine of growth. Products offer compelling features that customers are willing to be tied for a potentially long time, so on having a high retention rate. This is caused by an incredible network effect of the business (demand-side increasing returns and supply-side increasing returns)
  • Viral engine of growth. Awareness of the product spreads rapidly from person to person similarly the way a virus becomes an epidemic. Growth happens as a side-effect using the product
  • Paid engine of growth. It´s based on the idea on increasing the rate of growth, we have two ways: increase the revenue from each customer or drive down the cost of acquisition of a new customer. If our product monetizes better than our competitors, you have the opportunity to use your lifetime value advantage to drive growth

Pivots may happen in this step because misunderstanding and getting wrong key assumptions about the business model. A pivot is a major change to the hypothesis in the nine boxes Business Model Canvas based on the learning from the customer´s feedback. We have to see pivot as change in the strategy to achieve the vision not as a failure. According to Eric Ries there are a catalog of pivots: zoom-in pivot, zoom-out pivot, customer segment pivot, customer need pivot, business architecture pivot, value capture pivot, engine of growth pivot, channel pivot, and technology pivot.

When the customers confirm the importance of both the problem and the solution, then the customer discovery is complete.

The second step is Customer Validation for testing whether the business model (from the previous step) is repeatable and scalable. If not, we need to return to the Customer Discovery previous step. During this validation, we prove our ability to scale against a larger number of customers. As well, we develop a sales roadmap by a steady stream of customer purchases and validate the demand creation engine by a growing exponentially customer base.

After completing successfully the search phase (first and second steps of the customer development method), we have discovered, tested and refined our business model. In this moment, we have a sized group of customers and repeatable sales process, so it´s time to move to next step to scale.

The third step is Customer Creation is the start of the execution mode and aims at creating end-user demand for our product/service using our sales channels. Costs are fundamentally in sales and marketing activities by spending money in customer demand and driving it into the sales channels.  We have gone from the early adopters to the customer mainstream. It´s the time to validate our engine of growth defined in the customer discovery step.

And the fourth step is Company Building to make a transition from a startup to a structured and formal company focused on executing the business model.

According to Steve Blank, we need to pair the customer development with agile development because the product development team can iterate with the product with speed and agility because we can continually take customer input and deliver a product that iterates readily around the minimum features set. This idea can be illustrated in the following figure:

Product/Market Fit

When we´re in the third step (Customer Creation) of the Customer Development method, in my humble opinion, we´ve achieved the product/market fit.

The product/market fit concept was developed by Marc Andreessen, founder of Netscape. This concept is the answer to the question: If a startup is in search of a repeatable, scalable and profitable business, how do you know when it has happened?

Andreessen says that product/market fit means being in a good market with a product that satisfy the clients and they´re willing to pay for. It´s the time when the transition from early adopter to mainstream customers takes place and we´re growing (scaling) very good for adquiring new customers. He also states that “you can always feel the product/market fit when it´s happening” as well as “It is the only thing that matters”.

According to Sean Ellis, the achievement of product/market fit can be measured according to this specific metric: when, in a survey, at least 40% of users say they would be very disappointed without your product.

According to Eric Ries, the engine of growth determines the product/market fit because each engine of growth can be defined quantitatively with its own metrics so we can evaluate if we´re getting closer to the product/market fit, so we can tune our engine of growth.

Technology Adoption Lifecycle – Crossing the Chasm

When we´re in the fourth step (Company Building) of the Customer Development method, in my humble opinion, we´ve crossed the chasm.

The technology adoption lifecycle describes the stages a product goes through the marketplace. These stages are illustrated in the following figure:

Crossing the chasm is a concept developed by Geoffrey Moore that focuses on the nature of high tech products during early startup period. Geoffrey Moore argues that there is a chasm between early adopters of the product and mainstream customers, so we need to understand these differences and apply techniques to successfully cross the chasm.

Crossing the chasm is closely related to the technology adoption lifecycle where five segments are recognized:  innovators, early adopters, early majority, late majority and laggards. The key concepts are illustrated in the following figure:

Another view of the crossing the chasm concepts is illustrated in the following figure:

The most difficult step is making the transition from the early adopters to early majority. According to Geoffrey Moore, we need to focus on one group of customers at a time, using this group as a base for marketing to the next group.

Key techniques to cross the chasms are:

  • Select the target market
  • Understand the whole product concept
  • Position the product
  • Build a market strategy (product differentiation, cost leadership, market segmentation, innovation strategies)
  • Choose the appropriate distribution channel
  • Pricing model (enterprise software licensing structure, freemium pricing model)

Conclusion

In this article, I´ve tried to explain the principles, concepts and methodologies that I´ve learned in my research about building my own company using the lean startup and customer development approaches.

Please, let me know your thoughts regarding what I´ve talked about.